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Insurance & Reinsurance
On May 27, 2021, the Quebec legislature passed Bill 82 which allows government regulation to exempt certain "categories of insurance contracts" and "classes of insureds" from the Civil Code of Quebec (CCQ) requirements that defence costs in liability insurance policies not erode policy limits and that the limits be eroded only by the payment of "injured third persons".
Articles 2500 and 2503 of the CCQ previously read as follows:
The proceeds of the insurance are applied exclusively to the payment of injured third persons.
Article 2500 CCQ
The insurer is bound to take up the interest of any person entitled to the benefit of the insurance and assume his defence in any action brought against him. Legal costs and expenses resulting from actions against the insured, including those of the defence, and interest on the proceeds of the insurance are borne by the insurer over and above the proceeds of the insurance.
Article 2503 CCQ
Article 2414 of the CCQ limited the freedom to contract around the requirements of articles 2500 and 2503:
Any clause in a non-marine insurance contract which grants the client, the insured, the participant, the beneficiary or the policyholder fewer rights than are granted by the provisions of this chapter is null. Any stipulation which derogates from the rules on insurable interest or, in liability insurance, from those protecting the rights of injured third persons is also null.
Article 2414 CCQ
In Bill 82, section 86 proposed the following addition at the end of article 2503 of the CCQ:
Article 2503 of the Civil Code of Québec is amended by adding the following paragraph at the end: “However, the Government may, by regulation, determine categories of insurance contracts that may depart from those rules and from the rule set out in article 2500, as well as classes of insureds that may be covered by such contracts. The Government may also prescribe any standard applicable to those contracts.”
Section 86, Bill 82
It remains to be seen which "categories of insurance contracts" and "classes of insureds" will be exempted by future regulation and allowed to obtain policies which diverge from the requirements of articles 2500 and 2503 CCQ.
That said, we can draw clues from the review and debate regarding Bill 82 at Quebec's National Assembly Committee on Public Finance. During the debate of May 12, 2021, the Minister of Finance indicated that certain Quebec-based public companies were having trouble procuring insurance. He indicated that the government did not intend to exempt individuals and small and medium-sized businesses from the requirements of 2500 and 2503 of the CCQ, and that it was really public companies who faced prohibitive costs in procuring D&O insurance as a result of the CCQ requirements.
We will provide a further update once regulation is proposed with exempted "categories of insurance contracts" and "classes of insureds".